∂2 NB1 ∂2 NB 2
∂q1 ∂a ∂q1 q2
Since q1 and q2 are strategic complements, i.e.
∂2NB2
------ > 0
∂q1 q2
The second term is positive, and we have that
∂q2 ∂2NB1
sign — = sign - ɔ ɔ .
∂a ∂q1 ∂a
And
∂q2
∂θ1 .
• d 7ι ∙
sign — = -sign
∂θ1
Changes in country 1’s costs, i.e. let a=c1.
Effect on q1.
∂q1 ∂2NB1
sign — = sign ɔ ɔ .
∂a ∂q1 ∂a
Evaluate
∂2NB1
——— = - q 1 < 0, in our model.
∂q1∂θ1 1 ,
Hence,
42
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